Overcoming start-up barriers: Native-owned food business serves up lessons learned
The founders of Native American Natural Foods demonstrate that the goal of starting up a well-positioned business on an Indian reservation is attainable, provided certain elements are in place.
Published November 1, 2009 | November 2009 issue
The main article in this issue of Community Dividend touches on the topic of social enterprises, or businesses that have a "double bottom line" of making money and making the world a better place. The following article discusses a promising social enterprise in South Dakota that aims to generate both healthy profits and healthy lifestyles.
Native American Natural Foods LLC (NANF) is an Indian-owned, private-sector business headquartered on the Pine Ridge Indian Reservation in South Dakota. The young company creates healthy food products based on the buffalo, an animal intrinsic to Great Plains American Indian heritage and culture.
In 2007, NANF debuted its first food item: the Tanka Bar, a low-fat energy bar made of locally or regionally sourced ingredients, including smoked buffalo meat, cranberries, garlic, onion, and spices. Subsequent products include Tanka Bites, Tanka Bar Hot, and the Tanka Dog, an all-buffalo hot dog.
NANF hopes to tap into consumer demand for portable, nutritious foods that fit today's get-up-and-go lifestyle. However, bringing the Tanka brand to market was no easy task for the company's founders, who encountered financial roadblocks and other obstacles as they tried to get NANF off the ground. In sharing how they overcame the obstacles, NANF's founders provide lessons that may be useful for other business start ups, in Indian Country and elsewhere.
A larger-than-life vision
In the Lakota language, tanka means "larger than life," which reflects the vision of NANF's founders. The company is the brainchild of Mark Tilsen Sr., a longtime Pine Ridge activist, community leader, and entrepreneur; and Karlene Hunter, a member of the Oglala Sioux Tribe and the cofounder and CEO of Lakota Express (LEX), a full-service direct marketing company located on the reservation.
Hunter and Tilsen Sr. are not only accomplished business people. They are also committed members of their community who are seeking to advance the economic condition of reservation residents. In 2004, Hunter and Tilsen Sr. began discussing ways to promote greater well-being on the reservation and agreed that a food business could strike at three major issues affecting the community. First, there are widespread health problems such as diabetes and obesity that are tied to poor nutrition. According to the South Dakota Department of Health, 11 percent of Indian residents in South Dakota counties having a significant Indian population, including the county encompassing Pine Ridge, suffer from diabetes, compared with 6.7 percent of whites in primarily white regions of the state.1/ Second, there is a high level of joblessness. As of 2000, the unemployment rate on Pine Ridge stood at almost 17 percent.2/ Third, there has been a loss of cultural connectedness to traditions and food sources that once sustained a flourishing way of life.
Hunter and Tilsen Sr. established NANF in October 2006, with a focus on launching a company that would not only make money, but also encourage better nutritional choices, create job opportunities for local residents, and promote culturally important food ingredients.
Hunter and Tilsen's start-up company quickly encountered some hurdles. According to Hunter, financing issues topped the list. Indian residents of Pine Ridge have long faced obstacles in getting loans from area banks. There are numerous reasons for this, including the difficulty of using land held in trust by the U.S. government (a large portion of reservation land) as mortgage collateral, the lack of a commercial code to ensure recourse to financial institutions in the event of a loan default, high debt levels and low credit scores associated with high unemployment and poverty rates, and some residents' perceptions of racial discrimination.
There are remedies available for some of these obstacles. For example, Hunter points out that it's very doable for a bank, together with the Bureau of Indian Affairs (BIA), to enact a lease transfer, which would enable the bank to take possession of property in the event of default. However, most banks are unfamiliar with such alternatives. "If the banks could learn how financing works in Indian Country, it could be better for everyone," she says.
Brand-building and market penetration presented additional hurdles. According to Hunter, obtaining bank financing for brand-building and other needs that are outside the bricks-and-mortar arena was a challenge. She notes that marketing and brand-building are major expenses for companies trying to create a national market, but brand-building, by and large, "hasn't happened with businesses operating on Indian land." Breaking into the whole foods arena was another challenge. "To get into the whole foods market, you have to have a track record, and to do that you have to have a recognized product," Hunter says. For instance, when NANF's founders approached purchasing agents from the military, the agents asked which national stores were already buying the Tanka Bar.
Partnerships and creative financing are the keys
To overcome the obstacles facing their start-up business, Hunter and Tilsen Sr. realized they had to bring in partners with resources and skills that could support and complement their efforts. For example, NANF partnered with the Patton Boggs Law Firm for legal assistance, Nakota Designs for advertising and design work, and the American Indian College Fund for written material for the Tanka Bar web site. All are Indian-owned and -operated organizations, or have a significant Indian client base, and were willing to participate in a venture that could help the Indian community on multiple fronts.
In order to build their brand, "We had to get creative and get a lot of alternative funding," Hunter recalls. Initial funding came in the form of an equity investment facilitated by the Lakota Fund, which is the longest-standing Native community development financial institution (CDFI) in the country and is located within the Pine Ridge reservation. Founders of NANF had been involved in the effort to establish the Lakota Fund, which was then able to assist years later when the need arose.
To obtain funding to help NANF, the founders approached the Northwest Area Foundation (NWAF) about making an equity investment in NANF via the Lakota Fund. Dividends from the investment would go to the Lakota Fund's revolving loan fund. NWAF, which has a long-standing commitment to the dual issues of poverty reduction and Indian Country development, agreed to make the investment. Using the Lakota Fund as a conduit for the equity funding enabled NWAF to support NANF without investing directly in the company. The arrangement simplified matters for the foundation, since making a direct investment in NANF would have meant seeking prior approval from the Internal Revenue Service. [For more on foundations making investments in private entities, see "The L3C: A new business model for socially responsible investing."] The deal among NWAF, the Lakota Fund, and NANF may have been one of the first times a foundation and a CDFI delivered equity funding to a private, Native-owned company in such a way. According to Hunter, demonstrating this new way to make equity investments was a major stride forward for Indian Country.
Hunter and Tilsen Sr. themselves contributed additional equity financing, as did their family members and friends. Also on the financing front, NANF received a grant from the U.S. Department of Agriculture, which has funded other housing and business development ventures in South Dakota's Indian Country. The only bank financing NANF received was a BIA-guaranteed loan from First National Bank in Nebraska. The bank had a long-term involvement with Hunter and Tilsen Sr. through lending to LEX, which created a sense of trust.
According to Hunter and Tilsen Sr., additional funding came in the form of an investment by a nonprofit organization called the the Indian Land Tenure Foundation (ILTF), whose mission is to buy back lands located within the original boundaries of Indian reservations. It was the first investment made through the ILTF's newly created Buffalo Reinvestment Fund, an entity that will provide capital to Indian agricultural producers who raise buffalo.
Much of NANF's financial resources have been dedicated to building the Tanka brand. Tanka products are heavily marketed to Native communities via pow-wows, conferences, print media, and the Internet. Mark Tilsen Jr., who is Mark Tilsen Sr.'s son and serves as assistant director of marketing at NANF, is proud that the company has the savvy to market its products through social networking sites such as Facebook, Bebo, and Twitter. He emphasizes the importance of building an online community of customers who discuss everything from culture to health to politics. Tanka products have also made inroads nationally. Currently, they are sold at more than 3,000 locations, including major retailers such as REI, and about 20 new locations are added each day.
When extracting lessons from the NANF experience that could apply to other small business start ups, it's important to distinguish among elements that are particular to the place and people (Indian people residing at Pine Ridge), elements that may apply to Indian people in other places, and elements that may apply more broadly to non-Indian communities. Pine Ridge- and Indian-specific elements that have contributed to the successful establishment of NANF include:
- The existence of a defined cultural base from which the business could initially draw a market.
- Products that are oriented toward members of that culture, but also have broader appeal. For example, there is capacity to broaden the Tanka Bar's appeal beyond the Indian community, to health food aficionados, young people, outdoor enthusiasts, etc.
- Connections to a network of businesses and organizations that is also oriented toward that culture.
- A long-standing relationship of trust between the founding partners, forged through years of work on community issues and on building a previous Native-owned enterprise—in NANF's case, LEX.
- A long history with some major funders—particularly those that finance projects in Indian Country—that "greased the wheels" for financing a new enterprise.
Elements that may apply more broadly to other entrepreneurs seeking to start a business include:
- A passionate commitment to the mission on the part of the founders.
- A mission that includes, but goes beyond, the desire to make a profit. NANF's dual mission strengthened the founders' dedication to succeed and increased the responsiveness of the products' target customers.
- An emphasis on making use of complementary skills. In NANF's case, Hunter brought strong business skills, which complemented Tilsen Sr.'s marketing and organizational development skills. Tilsen Jr. was able to apply his knowledge of technology to expand the reach of the business.
- Connections to an external network of partners—businesses, community organizations, colleges—that can supply the skills and resources necessary for a start-up business's success.
- Founders with some degree of business savvy or experience to make the case for financing and win trust and commitment from funders.
- An understanding of the importance of incorporating technology and social networking sites into marketing and other business components.
Hunter and Tilsen Sr.'s experiences in founding NANF illustrate that the goal of starting up a well-positioned business on an Indian reservation is attainable, provided certain elements are in place. It has been a struggle for NANF's founders to secure all the necessary components and move forward. However, a strong sense of social mission, combined with business know-how and the support of committed partners, have carried NANF a long way already and may help open the door to a national breakthrough.
For more on NANF and its products, visit www.tankabar.com.
2/ U.S. Census Bureau, Census 2000.